She Is Already Getting a 12% Increase! Why Offer Her More?

“She is a good candidate, but I want to bring her in at 75% of our market value. That salary will give her a 12% increase, and it saves my budget. She will take it.”

“Not so fast. Our minimum is 90% of market value.”

After reviewing the resume, application and interview notes for this female project manager (who was qualified for the position and a good performer with her current, smaller-sized employer), I gave the hiring director two choices: Bring her in at 90% of the market value – which meant a 27% pay increase – or offer her the 12% pay increase and a lower pay grade, with a written promise to review her performance for a promotion and pay raise in six months.

The director chose the latter, after grumbling. The candidate accepted the job and was promoted in six months, bringing her up to the 90% minimum of the higher job.

Pay decisions are tough, and there is a lot at stake.

I appreciated the director’s willingness to seriously consider qualified female candidates, and the need to count pennies for his budget. But, there is a larger issue at stake: pay-equity.

Women have made progress in being paid competitively with men, when similarly qualified and performing at the same level as men. At some organizations and levels, such as CEO[i], and in some professions, such as social work, women make more than men.[ii] In other professions, such as human resources, teaching, and nursing, they are paid the same as men[iii]. But, they are still paid 80% of what men make on average[iv]. In states, like New York, women have lessened the gap, earning 89% on average of what men make.

There are many reasons for the pay-equity gap, as documented by empirical research. Women are often willing to work for less pay than men and are less demanding for higher pay when negotiating new job salaries (as in the real example above). Another reason, they take extended breaks from work more often than men to raise children or care for elderly parents. Time taken away from work puts them behind similarly aged men for gaining experience. Because of these factors, women’s pay in male dominated professions, such as software development, fails to increase, when compared to men[v].

Another reason for this pay discrepancy is long-standing conscious or unconscious bias against women.

Pay for performance can solve the problem.

I am all about pay for performance. I am equally passionate about business correcting gender-based pay disparity. If business doesn’t correct it, government will. And, we won’t like the outcome.

Government solutions will involve equity mandates and bureaucracy. Mandates will weaken one of the biggest motivators and rewards that companies have to motivate their employees and recognize and retain their best performers (both female and male, white and minority): pay for performance.

Despite the conservatism of the Trump administration, some states are implementing tough pay equity laws.

Currently, the states of California, New York, Maryland, and even red-state Nebraska, and a dozen other states, are implementing pay equity laws in an attempt to eliminate the pay discrimination between men and women.[vi]

In 2016, for example, California passed a law that fundamentally alters how pay equity claims will be analyzed and lowers the bar for pay equity lawsuits. California’s changes significantly alter past standards for pay equity (which have been on the federal books since the 1963 Pay Equity Act):

Employees can be compared for pay discrepancy, even if they do not hold the same or substantially equal jobs. The new law only requires showing that the employees are engaged in substantially similar work, when compared as a composite of skill, effort, and responsibility, and performed under similar working conditions.

Employees’ pay can be compared, even if they do not work at the same establishment.

Employers will be required to justify pay differentials, and the law limits the factors that employers can use in their defense.

Permitted reasons for pay differences are the following:

A seniority system

A merit pay system

A system that measures earnings by quantity or quality of production (such as piece rate work)

The California Equal Pay Act also prohibits employers from not allowing employees to discuss their pay with each other (most employees compare compensation, despite such prohibitions.) The National Labor Relations Act also prohibits this practice. The California Equal Pay Act requires employers to keep pay records for three years[vii].

Back to my example above – I had implemented a pay structure that brought all employees, up to a 90% minimum of the job market value in its industry and location. Why? First, to prevent the hiring of qualified women at substantially less pay than men.

Second, with annual pay increases set at only 2% to 4%, employees brought in below this minimum would never get to market pay without some huge adjustment. That large of a discrepancy creates dissatisfied employees over time and future turnover problems—which costs more than pay equity.

On the other end of the spectrum, we were aggressive with pay for performance. We allowed paying the best performers up to 20% above market value—based on objective performance criteria and reviews by more than their direct manager in order to assure that performance criteria and performance judgments were not based an individual manager’s bias. We also gave big pay increases to great performers who had not yet reached market value.

On an annual basis, my human resources team audited differences in pay between men and women and whites and minorities, looking for those who fell below the 90% minimum, as well as any pay disparities that could not be explained by documented legitimate performance differences. When we found disparities, we corrected them. We also eliminated leave of absence as a reason to not give merit pay increases.

What is your company doing to prevent pay disparity based on gender, race or other invalid factors? If business doesn’t correct pay inequity, state and municipal governments will. We won’t like the outcome.